Ignatiev
Thesis
IQVIA Holdings Inc. (NYSE:NYSE:IQV) has demonstrated impressive growth in diverse segments of its operations during the second quarter by reporting non-GAAP EPS of $2.43 that beat by $0.06, and revenue of $3.73B that beat by $20M. This analysis argues that with a solid financial position, a record-high backlog, and favorable market conditions, IQVIA appears to be well-positioned for sustained progress which justifies a “buy” recommendation.
Company Overview
IQVIA Holdings Inc., a global firm rooted in the life sciences industry, has established a significant presence across multiple continents. Their strategy leans heavily on advanced analytics, technology solutions, and clinical research services.
Operating via three main segments – Technology & Analytics Solutions, Research & Development Solutions, and Contract Sales & Medical Solutions – the company has created a cohesive, interwoven business model. Their portfolio extends from providing cloud-based applications to offering real-world solutions for healthcare decision-making, from managing and monitoring clinical trials to developing pioneering laboratory services, and from fostering patient engagement to providing scientific strategy services.
Since its inception in 2016, IQVIA, which rebranded from Quintiles IMS Holdings in 2017, continues to serve a diverse clientele, ranging from pharmaceutical and biotech to device and diagnostic and consumer health companies, shaping the future of the life sciences industry from their base in Durham, North Carolina.
IQVIA Holdings Q2 Earnings Highlights
IQVIA Holdings unveiled its financial performance for the second quarter and the first half of 2023, exhibiting an impressive trend of growth in diverse segments of its operations. For the second quarter, the company reported revenues that reached a robust figure of $3.728 billion. This indicates a growth of 5.3% – a noteworthy feat. Yet, an even more striking picture of performance is painted when one removes the effect of COVID-related business activities. This gives us an organic growth rate of 9% based on constant currency.
The half-yearly results echoed this favorable trend. IQVIA’s revenue for the first half of 2023 registered a rise of 3.8%, amounting to $7.380 billion. Excluding the influence of COVID-related operations, the company managed to clock an organic growth rate of 10% at constant currency – a strong indication of sustained progress.
Diving deeper into the performance of the company’s segments, the Technology & Analytics Solutions (TAS) and the R&D Solutions (R&DS) displayed commendable growth. The TAS sector recorded an increase of 3.4% in Q2 and 1.9% in H1. In parallel, the R&DS sector charted a growth of 7.5% in Q2 and 6.1% in H1.
IQVIA appears to be in an advantageous financial position with $1.382 billion in cash and cash equivalents on hand, successfully managing to chip away and reduce net debt to $12.395 billion while simultaneously posting impressive operational cash flow results during Q2. Also, to further maintain momentum towards shareholder value creation, its Board of Directors recently approved an increase to their share repurchase plan by an increase of $2 billion.
In terms of future growth, IQVIA appears to be on solid ground. Its backlog has soared to a record $28.4 billion, marking an 11% YoY increase; furthermore, the company’s quarterly net new bookings were the second-highest ever, standing just below $2.7 billion. Alongside this, the company’s RFP flow hit a record high, highlighting a strong demand in the industry.
Lastly, it’s probable that investors are informed about the legal actions taken by the Federal Trade Commission in mid-July against IQVIA, objecting to the company’s intended acquisition of Propel Media. In light of the current legal circumstances, CEO Ari Bousbib initially maintained silence on the subject, but then made the following remarks on the conference call:
We continue to believe strongly that there is absolutely zero logic to blocking this transaction. But we are aware that there are a few novel theories that are being promoted by this administration of the FTC. And listen, administrations come and go. And we are not going to change our M&A strategy. We believe that we are still a very small player in a hugely massive digital promotional market.
We believe that this acquisition actually increases the degree of intensity of competition in this market and actually allows all other participants to counter the essential strong behemoths that dominate the digital space today. So we just simply do not understand the FTC’s arguments, and I’ll leave it at that.
Performance
IQVIA Holdings stock’s price has seen a remarkable increase in the medium-term, jumping from USD 77.82 at the beginning of 2017 to USD 219.13 as of August 2023.
Fast Graphs
If you had invested USD 10,000 in IQVIA in January 2017, your money would have grown to USD 28.159K by August 2023. That’s nearly a triple return on your original investment – impressive by any measure.
Over the same period, the S&P 500 Index would have grown your initial USD 10,000 investment to USD 20.091K with a dividend payout of USD 1.602K. When you add the dividend to the growth, you get USD 21.693K – a considerable return, no doubt, but substantially less than IQVIA’s growth.
When we put this into percentages, IQVIA has an annualized rate of return (ROR) without dividends of 17.08%, while the S&P offers an ROR of 11.21% – a notable difference. Taking into account the dividends, IQVIA’s compound growth still stands at 17.08%, while the S&P grew to 12.52%.
Valuation
The company exhibits a healthy earnings growth rate of 14.79% (see chart below), which is above average and an indication of its strong operating performance. And looking at its valuation, IQVIA’s Blended P/E ratio is 21.38x, slightly below the normal P/E ratio of 22.83x indicating that the stock is currently trading at a discount relative to its historical multiples, providing a possible entry point for value-oriented investors
Fast Graphs
Risks & Headwinds
Despite IQVIA Holdings’ predominantly strong performance, the financial results unveiled a few areas that warrant attention. The Contract Sales and Medical Solutions (CSMS) division manifested a downturn in its revenue, registering a dip of 3.8% in Q2 and 5.3% across the first half of the year. Furthermore, according to management, expectations for the Technology & Analytics Solutions (TAS) and CSMS segments have been adjusted downward in response to ongoing client apprehension, a trend projected to persist throughout the remainder of the year.
Correspondingly, IQVIA has recalibrated its revenue guidance for the year, now forecasting a range between $15.050 billion and $15.175 billion. This reflects a year-on-year growth within the bracket of 4.4% to 5.3%. The firm also anticipates that the CSMS segment’s revenue will contract by approximately 3%. Expectations for the full year’s adjusted EBITDA and adjusted diluted earnings per share (EPS) have also been moderated, with the latter projected to post a growth between 0.4% and 2.9%.
Final Takeaway
Based on IQVIA Holdings’ impressive Q2 and H1 2023 performance, record-high backlog, successful cash flow management, substantial share repurchase plan, and the stock’s current undervaluation, I’d rate this stock a “buy.” However, potential buyers should be aware of legal proceedings related to a blocked acquisition and a downturn in the CSMS division. The company’s strong growth and operational resiliency, coupled with its proven ability to navigate market uncertainties, indicate it is poised for sustained progress, justifying my “buy” recommendation.
